Kurdistan amends repayment terms to IOCs, citing higher oil prices, pandemic stress

London — The Kurdistan Regional Government plans to slash payments owed for previous shortfalls to international oil producers operating in the semi-autonomous region of Iraq, citing the rise in benchmark Dated Brent prices as well as the fiscal strains caused by the pandemic, the companies -- DNO, Genel and Gulf Keystone -- said May 13.

Under the proposal, the cash-strapped KRG will lower its payments to companies from 50% of incremental revenues above a Dated Brent price of $50/b to 20%. Invoices will be paid within 60 days, but the KRG could change the terms if markets become volatile, the companies said.

DNO, Genel and Gulf Keystone said they had not yet accepted the terms.

"The proposal has not been discussed with, or accepted by, Genel, and we look forward to discussing it with the KRG shortly," Genel said in a statement.

The KRG, which manages oil production within the semiautonomous region of northern Iraq, did not respond to a request for comment.

The catch-up payment program started in December and was intended to help the KRG reimburse companies for payments withheld from November 2019 to February 2020 as the government has struggled with its finances.

S&P Global Platts assessed Dated Brent at $70.22/b on May 12, and the benchmark has been above $50/b since December 10. Platts Analytics forecasts that Dated Brent will average above $70/b this summer, hitting a peak of $73/b in July, before declining the rest of the year but remaining well above $60/b.

Gulf Keystone, which operates the Shaikan field, said it was still owed $65 million in outstanding invoices.

Separate "override payments" due to Genel of 4.5% of revenues from the Tawke field will continue, said Genel, which also operates the Taq Taq and Sarta fields.

DNO, which operates and has a 75% stake in the Tawke license, with the remainder held by Genel, had said May 6 that its outstanding balance was $239 million, and that it expected about two-thirds of the amount would be recovered by year-end, if oil prices and production remained stable.

"DNO is reviewing its position and will engage with Kurdistan to seek agreement regarding payment terms, interest on the arrears and revised lifting arrangements," it said.

Struggling finances

The reactivated payments since December had enabled the companies to boost production from their fields, after major slumps due to the pandemic and the oil price crash.

The Tawke development produced 112,000 b/d in the first quarter, up from 110,000 b/d in the previous quarter, according to DNO, while Shaikan produced 44,405 b/d in January, its highest level ever, Gulf Keystone said.

KRG crude exports from the Turkish port of Ceyhan have likewise risen, averaging 390,000 b/d in April from 335,000 b/d in March and 345,000 b/d in February, according terminal reports seen by Platts.

Crude production from the Kurdistan region in recent months has represented just over 10% of Iraq's total output.

The KRG, which has struggled to pay public sector salaries, has been locked in a standoff with the federal government in Baghdad over how to split state revenue.

Kurdistan has pledged to hand over 250,000 b/d of its oil to the federal government in return for its share of revenues, with the remaining 180,000 b/d allowed to be marketed by the KRG, under the 2021 budget, which the Iraqi parliament approved on March 31.

Those transfers have yet to happen.

Iraqi oil minister Ihsan Ismaael told state television on April 22 that the federal government was also holding talks with Kurdistan over amending its production-sharing contracts with international oil companies.